FSSIA Expects Strong Profit Growth in BANPU on High Coal and Gas Prices with TP at THB18.80

The share price of Banpu Public Company Limited (SET: BANPU) has good performance so far this year, but not to the point it should have been considering a record high of Newcastle Coal price at $440/t in March. 

BANPU gained 16% since the beginning of this year, 11.8% month-to-date and 2.5% week-to-date. Still, the share price is 18% lower than its 52-week high of THB14.9 per share in October 2021. 


FSS International Investment Advisor (FSSIA) stated that BANPU’s operational strength from coal and gas should manifest in 1Q22, which would reflect in its strong net profit of 8.6 billion baht in the first quarter of 2022, with a core net profit of 12.7 billion baht, up from 10.5 billion baht in 4Q21, and a hedging loss of 4 billion baht, down from a loss of 7 billion baht in 4Q21. 

BANPU will post very strong quarterly net profit from 1Q22 onward, backed by a sharp decline in its hedging losses for both coal and shale gas swap and much wider gross margins, FSSIA says.

Lower hedging loss will play a great role in BANPU’s performance onward, citing that the management plans to significantly reduce its hedging volumes for both coal and gas via price swap as the company has changed its hedging policy target from 92% to 65% of shale gas produced. Meanwhile, coal hedging volume in 1Q22 would be 155kt, with a potential hedging loss margin of $100-150/t, potentially leading to significantly narrower hedging losses for shale gas in 1Q22 onward. 

More importantly, FSSIA expected BANPU to raise its average selling price for coal in 1Q22 and 2Q22 in tandem with the spike in the Newcastle price to over $300/t in 1Q22. FSSIA expected ASP in 2022 around $154-185/t for its two subsidiaries PT. Indo Tambangraya Megah Tbk (ITMG) and Centennial Coal Company Limited (CEY), which is a significant increase from an average of $106/t in 2021.

In addition, FSSIA maintained “BUY” recommendation on BANPU with a target price of THB18.80 (SoTP), stating that the share price remains highly attractive, trading at a mere 3-4x of 2022-23E P/E, which is highly unjustified given the high visibility of its strong net profit growth outlook in 2022-23 on the back of high global prices for coal and gas. 

FSSIA believed that the strong 1Q22 net profit of 8.6 billion baht should exceed investors’ expectations as a higher ASP and lower hedging loss would likely drive its net profit significantly QoQ and YoY in 1Q22 onward.